Business Irish

Saturday 24 March 2018

Thomas Molloy: Sleight of hand in Noonan logic

MICHAEL Noonan deserves some credit for introducing a Budget that was tough but fair.

The biggest problem was not the measures themselves but the Finance Minister's dishonesty when it comes to their likely effects on individuals and families.

At a press conference last week, Mr Noonan firmly rejected suggestions that his Budget would cost the average family around a €1000, and claimed that only an extreme case such as somebody on social welfare with six children living in a €500,000 house might lose this sort of money.

That is patently absurd.

A quick look at the minister's own family situation, had he not ditched teaching English for politics, proves the point.

Mr Noonan has five children which means that he would have lost €78 a month in child benefit were he still a family man. That alone equals €936 a year.

Assuming he had a house in Limerick worth a modest €150,000, he would also be shelling out property tax of €270. Add in the abolition of the PRSI exemption which will cost everybody around €250 and the Noonan family would have been close to €1,500 poorer.

That Mr Noonan can claim, with a straight face, that he "rejects" the notion that his Budget will cost average families €1,000 serves as a reminder of just how out of touch the elites are. But we knew that.

What it really does is highlight the need for independent organisations such as the Fiscal Advisory Council or the Economic and Social Research Institute to do pre-Budget analysis of the various proposed measures.

Pat on the back for IBEC's impressive lobbying power

IBEC can give itself a gentle pat on the back following last week's Budget.

The employers' lobby group can point to at least two major achievements with Michael Noonan's refusal to introduce a sugar tax and his decision to allow the self-employed to take money out of their AVCs.

Neither of these measures make much sense. Health Minister James Reilly has told a healthcare conference that he wanted a sugar tax because half of the obese people coming into his GP's practice did not know that they were too fat.

It says a lot about the topsy turvy world of Irish life that a tax cannot be introduced even when a minister actively campaigns for such a tax while hundreds of taxes are introduced against the wishes of other ministers.

The decision to allow people to raid their AVCs will undoubtedly encourage banks to place pressure on many self-employed people to do just that and so ensure that many people go bust and then discover that they also have a smaller provision for the future than needed.

Neither decision seems particularly prudent but that makes IBEC's achievement all the more impressive. While it is a tribute to IBEC's lobbying powers it also smacks of what the economist Willem Buiter calls "cognitive capture" – a process that allows big business to capture the minds of civil servants.

It is this same cognitive capture that helped cause the financial crisis and shape the response – ensuring that legislators all over the world came to see the world from the bankers' point of view. This in turn led to the bailout of banks rather than households which were in debt.

This intellectual bias which prompted the bailout of Anglo Irish but not the country's broken mortgage borrowers appears to be alive and well.

Despite everything, the political priority and financial support of the country's largest financial institutions seems to come before everything else.

Dodgy company alerts by Central Bank go online

Netflix chief executive Reed Hastings is in trouble because he said on his Facebook page that viewers had watched over one billion hours of video using his company's service. Now, the US Securities and Exchange Commission may bring a civil suit against the company for improperly disclosing that information.

Mr Hastings is in trouble despite having around 200,000 subscribers on Facebook, including journalists and analysts. His main defence seems to hinge on the argument that he has distributed the information to a wide group of people while his opponents say that investors in publicly-traded companies should not need to crawl all corners of the internet to discover information that affects their company.

This debate is likely to become more important in the years ahead as more and more information distribution channels develop.

Companies may one day Tweet their results or paste up product recalls on Bebo but it is difficult to know when this will be acceptable.

The Central Bank has recently decided to inform people about crooked companies through its website rather than the traditional newspaper ads that alerted people to dodgy companies in the past.

While the bank probably thinks it is saving money, this seems more than a little premature. It is unlikely that more than a few hundred people consult the page from one end of the month to the other.

The excuse that something has been posted on a website is a common one but it is premature until some mechanism is created that allows all interested parties to know that the information is sitting there ignored and unread.

Indo Business

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